When-was-the-last-time-you-had-your-loan-reviewed?

When Was The Last Time You Had Your Loan Reviewed?

The lending environment is changing all the time, so it’s important to regularly review your loan or loans and make sure you’re getting the best deal you can.

Say you’ve had a loan for the last 2 years for example, chances are that you’ve missed one or more potential interest rate reductions. On top of this, your life may have changed. Have you accrued some equity? Got a promotion at work? Had children? Any changes mean your current loan may not be the most suitable for you.

Rate expectations

One of the major reasons to review your loan is that there may be a better deal on interest rates available.

If you are paying more than you need to on interest, you are essentially donating money to the bank. 

Interest rates have been trending downwards for the past decade. In fact, multiple banks have cut rates on their variable loan offerings in the past month, so it’s well worth testing the market.

There are variable rate loans out there for owner-occupiers for below 2% and investment loan rates below 3%. On the flipside, some rates are above 5%. If you have a $300,000 loan and swap a 5% interest rate for a 2.5% one, that’s $7500 a year you are taking back from the bank and using elsewhere.

Once compound interest is factored in, you save even more money because you take years off your loan.

Flexible features

Loans are complex beasts these days with a raft of features that can be tailored to the diverse needs of borrowers.

A couple of years out of the market could mean you are unaware that lenders are offering extra repayment options on fixed loans, better offset facilities or waiving certain fees. All of these changes can add up to money and time saved.

The flipside of this is that if you sign up to a loan with more bells and whistles than you need, you may find you are paying for the privilege of features that you never use.

And sometimes you can be trapped by a loan’s fine print…ie, the rates are great, the features are great, but you’re locked in for 2 years and can’t revalue to access your equity.

So, always look further than just interest rates, when choosing a loan.

Introducing…a better deal

If it’s been some time since your last loan review, you’d better believe you’re not on the best deal that bank can offer you.

See, banks count on you paying the “lazy tax”. Why do you think the bank sent people to your primary school when you were a kid to “educate” you about saving money and using deposit and withdrawal books?

It’s because they know that once people sign up with a certain bank, the vast majority never bother to leave.

Once you are on their books and have been for years, do you think they are offering you the kind of deals they are offering potential new customers?

Of course not. They don’t need to. But go online and you might find they are offering customers of other banks a $3000 cashback deal to jump ship to them. That’s because their business models are based on recruitment and retention.

But what about you? You’ve been a loyal customer for years, shouldn’t they reward you for your loyalty? The reality is that if you want access to those deals, it’s all on you.

Research what is out there at other banks. Are there lower rates, cashback offers, better features, introductory deals? If there are, you should be fully prepared to switch.

And if you like your bank and want to stay, simply go back to them and threaten to leave if they don’t match the deals. That’s where the retention part of their business model kicks in and you might just find they have something a little better up their sleeve for you.

 

 

Looking to climb up the property ladder

Looking To Climb Up The Property Ladder

So you want to make the most of low interest rates and rising property markets and build a bigger property portfolio?

Unfortunately, those same low interest rates make it much harder to save for a deposit the old fashioned way. But that doesn’t mean you can’t climb up the property ladder. That’s where equity comes into the picture.

Equity is the amount your property is worth minus what you still owe on it. Basically, it’s the portion of the property that you own outright. If you owe $200,000 on a property that’s worth $300,000, your equity is $100,000. If that property rose by another $50,000 in value the next year and you paid off another $10,000 of it, your equity would go up by $60,000.

If you already have at least one property, chances are that it’s gained in value over the past 12 months.

Revaluing it can unlock that extra equity, so that you can use a portion of it as a deposit on your next investment property.

New way of thinking

Back in the days when interest rates were high, the biggest hurdle to buying property was actually paying off the loan. Deposits were easier to save because your cash was boosted by those same high rates. So, saving a 20 per cent deposit on a $100,000 property didn’t take long, but paying it off could take 30 years!

These days, super low interest rates mean servicing a loan is the easiest part. But saving a 20% deposit, plus stamp duty costs when there are returns of less than 1% interest on the cash you have in the bank is much more difficult.

And this is basically why property investors have been dominating first home buyers at the affordable end of the market in recent years. They have equity ready to use as a deposit while the first home buyers are stuck trying to save money.

So how do I do it?

First things first, talk to the experts. Zinger Finance has a team that specialises in helping people build big property portfolios by using smart financing strategies and regularly pulling equity out of their assets.

Zinger can organise a valuation on your existing property. If, like most real estate in Australia, it has increased in value since its purchase or last valuation, you will have made some equity.

But you can’t use it all. Say for example, you have $200,000 equity on a property, the bank won’t let you use the full amount to invest because it would be exposed to too much risk if there was a dip in values for your existing property, or new property.

Instead, they will allow you to access a portion of it. Usually around 80% of your existing property’s current value minus the debt still owing.

So, in the case of that example property at the beginning of this article; if it’s now worth $350,000 and you owe $190,000, your overall equity is $160,000.

But your useable equity might be $280,000 (80% of $350,000) minus $190,000. That leaves you $90,000 to invest with.

The Zinger difference

A lot of mortgage brokers set you up with loan products where you are locked in and unable to refinance for a certain period of time (usually years). This ensures they receive their full commission from the lender.

But Zinger Finance aren’t like your typical mortgage brokerage. They’re a team of Mortgage Strategist. It was founded to cater to property investors looking to build big property portfolios and one of the ways to do so is to ensure you have the flexibility to revalue and refinance as often as you need to.

Zinger’s team of strategists can help you get your properties valued and revalued regularly to unlock all the useable equity you need, at the right time to help you reach your property investment goals.

Reach out

If you need help building a strategy to climb the property ladder by maximizing your use of equity and being educated on the best way to structure loans, get in touch to our team of Mortgage Strategists.

 

 

Who-can-borrow?

Who Can Borrow?

There are a number of different borrower types that banks will lend money to for property investment in Australia. This article looks at what you need to know if you want to take a loan as: an individual, a joint venture, a trust and a self-managed superannuation fund (SMSF).

I’m an individual

Borrowing as an individual is the most common and straightforward way to get into the property market and you can use equity in your family home, the estimated rental return and your own steady employment to appease lenders. It also means you are the only one who signs off on selling, raising rent, engaging property managers and other decisions.

You are the only one responsible for your property investments and debt strategy and you won’t be affected by anyone else’s financial misfortune or mismanagement. You need to personally suit lender eligibility requirements around income, spending habits and credit history. Bear in mind that individuals with a full-time job will be assessed differently than someone who is self-employed.

Another benefit is being able to use negative gearing as a strategy, as long as it suits you. This means that if you are making a yearly loss by putting more money into the repayments and holding costs of an investment property than you are getting in return from rental income, you can offset that loss against your personal income for the year and pay less tax, while still benefiting from the growth potential of the investment. Negative gearing is not available when borrowing as a trust.

Let’s get together

If you and one or more associates want to get into the property market but don’t have enough of a deposit or serviceability to buy alone, you can go in together on a joint venture. If the property you purchase grows in value, you might find you can sell or withdraw enough equity to each go alone on a future investment. However, there are things to be aware of. If you split the loan and serviceability requirements down the middle, each investor will be held liable for the full debt, but will only have half the rental assessed as an income. So, if one loses their job and can’t make repayments, other members of the joint venture will be held liable and in the event that you’re not able to continue the full commitment your credit record and future borrowing power might be personally damaged.

If you’re going into a joint venture, you will need independent financial and legal advice before borrowing. Ensure you agree on a financial debt structure and exit strategy and have a legal professional draw up an agreement for the venture, to be referred to down the track if circumstances change or if one member wants to take a different direction than the others. 

In property we trust

Creating a family trust is a method of property investment growing in popularity. Under this financial structure, the assets and income are held by the trust and profits are distributed to the members/beneficiaries of the trust by an appointed trustee, who manages the investments.

Trusts offer a good way to create intergenerational wealth by passing assets to future generations without having to sell and pay capital gains tax (CGT). It also protects assets from the circumstances of individual beneficiaries: i.e., if financial disaster should befall one of the beneficiaries, the trust’s assets are not under threat from debt collectors.

The trustee can also use discretion to distribute profits to beneficiaries in a way that can reduce the amount of tax everyone has to pay. There are several different types of trust that will be considered, so engage a professional for advice on which is the best structure for you. 

Wanna be a super star?

Every year there are more Australians establishing SMSFs in order to manage their own superannuation. One of the key reasons they do so is to invest their nest egg in property. Your SMSF can borrow for a property but it’s harder than borrowing as an individual and there are complexities.

First, there is more risk attached for lenders, so banks are more conservative. You may need more than the usual 20% deposit and could pay higher interest rates and fees than a regular borrower. Superannuation law also makes it harder to service and benefit from the loan.

For example, when making repayments, your SMSF can only use the property’s rental income, plus 10% of your personal salary (your superannuation contributions), so you need to make sure it’s positively geared and in a market with great tenant demand.

Because it’s your super, you are not allowed to access the income or equity of the property until you retire (at least age 60). Also, neither you, nor your family or friends can stay in or use the property for personal reasons.

The good news is that investing using super is a non-recourse loan, so if the loan defaults for some reason, the lender can only access the asset in the SMSF trust, not your personal assets outside of super.

Reach out

If you have any more questions or want some information on borrowing and debt strategies, reach out to Zinger Finance. Our team of Mortgage Strategists can help you choose the best options for your investment journey.

 

 

Introduction-to-the-family-home-guarantee

Introduction To The Family Home Guarantee

The year has been a tough one so far for first home buyers trying to get into the property market, with asking prices headed for double digit growth in multiple capital city and regional markets around Australia according to Propertyology.

If you are a single income loan applicant, it has been even tougher, so imagine being a single parent on top of that.

But there was good news in the recent federal budget announcement, with single income earners with dependents to be eligible to borrow to buy a home with only a 2% deposit.

So, here’s what you need to know about the Family Home Guarantee.

Are you eligible?

From July 1, single income parents will be able to apply for a loan under the scheme. To do so, you will need to have a household income of under $125,000. After your 2% deposit, the government will guarantee up to a maximum of the remaining 18% of a regular 20% deposit usually required by lenders to avoid lenders mortgage insurance (LMI).

As a single parent with at least one dependent, you will need to demonstrate you are legally responsible for the day-to-day care, welfare and development of the child and that they are in your care. You must be the sole applicant on the form and intending to live in the home you purchase.

It doesn’t necessarily have to be your first home, but you won’t be eligible if you currently own a home already, including an investment property, commercial property or land holding.

Depending on existing custody arrangements, two separated parents of the same child may be eligible to apply in some cases.

What properties are eligible?

As with most government grants and concessions, there are limits around the values of the properties that apply to the scheme. These differ by state and territory, so it’s important to check what price caps apply to you.

NSW has the highest price caps, with $700,000 for an established property and $950,000 for a new build in the metro and major regional centres, and $450,000 (established) and $600,000 (new build) for the rest of the state.

VIC is next with $600,000 (established) and $850,000 (new) in major centres; and $375,000 (established) and $550,000 (new) in the rest of the state.

In QLD, it’s $475,000/$650,000 and $400,000/$500,000, while in WA, it’s $400,000/$550,000 and $300,000/$400,000.

In SA, it’s $400,000/$550,000 and $250,000/$400,000, while in TAS it’s $400,000/$550,000 and $300,000/$400,000.

In the ACT, it’s $500,000 for established and $600,000 for new properties all over the territory and in the Northern Territory $375,000 (established) and $550,000 (new).

Spaces are limited

Right now, the government estimates 125,000 single parents who may be eligible. Around 80% of these are single mothers.

But not everyone who is eligible will get a look in as the government plans to grant just 10,000 applications over the next four financial years.

How do I apply?

Applications will need to be made via one of 27 participating lenders across Australia, so check with a mortgage broker or potential lender before applying.

Applications will open on July 1 and the scheme is being administered by the National Housing Finance and Investment Corporation.

Still not sure if you qualify for assistance?

If you are unsure if you are eligible to apply for the Family Home Guarantee or wish to know more about the other first home buyer grants or concessions you may have access to, please reach out to the team at Zinger Finance.

Our Mortgage Strategists can help you understand your options and make an informed choice moving forward.

RBA Cash Rate Announcement – June 2021

The RBA made it seven straight months with no cash rate movements today, leaving the official rate on hold at 0.1% during its June meeting.

The decision was never in real doubt, with no recognised finance analysts predicting a rise or fall.

The RBA board has decided to keep in place its current policy settings, including targets of 10 basis points for the cash rate and the yield on the 3-year Australian Government bond.

The central bank maintains that the global economy is recovering strongly from the pandemic and that the outlook for growth is strong for this year and next.

However, don’t mention that to the Victorians currently wallowing in their fourth pandemic lockdown, as they might be a little less optimistic. 

Making noise about rate rises

Recent months have seen the RBA claim it won’t consider a rate rise until 2024 at the earliest, but that hasn’t stopped some banks from lifting rates on home loan products with fixed terms of 3 years and over.

Some analysts have noted that the continued downward trajectory of unemployment rates from 5.8% in February and 5.6% in March plus positive recent economic reports by central banks in New Zealand, Canada and the USA may give the RBA cause to consider withdrawing some of its current stimulus measures. This would potentially send the Australian dollar higher and raise expectations for interest rate hikes.

However, other commentators point to the fact that inflation is close to, or above target, in New Zealand, Canada and the USA, while it is still a long way below where it would need to be in Australia for the RBA to consider a hike.

The jobs market is still a long way from full employment, wages growth at 1.5% is way below the 3% plus pace necessary to sustain 2-3% inflation and in any case, inflation is still well below its target zone,” AMP economist Shane Oliver said. “So, a rate hike remains some time off.

No doubt the RBA would dearly love to be in a position to raise rates but for the moment at least, they are stuck on this historic low with the looming threat of further rate cuts still a distinct possibility.

Investors making waves in housing

Data out last week showed that housing credit grew by 0.5% in April, adding up to now be 4.4% higher for the year and the RBA has noticed that lending to property investors has increased.

The washout from hot property markets across Australia is that credit growth is likely to quicken in the next few months as new lending to both investors and owner-occupiers is up by more than 50% year on year.

It makes sense as property investors are buoyed by recent property results across capital cities and major regional hubs and want to get a piece of the double-digit growth primed for this year across various property markets.

The RBA will be under some pressure to keep an eye on this increase in credit as housing markets look likely to remain strong during the traditional slowdown period in the winter months.

Banks moving independently

If there’s one thing, we have grown accustomed to from banks, it’s the passing on to borrowers of any additional costs or hardships to the bottom line.

Therefore, it’s not surprising that the RBA’s potential withdrawal of pandemic stimulus for banks has seen some lenders move to raise rates independently. In addition to long term fixed rates tracking upwards, we may soon see rates on shorter term fixed products increased too.

You should follow suit

In the same way that banks move independently, outside of rate cycles, you can do the same with your own interest rates. Banks are in the business of attracting new customers and retaining existing ones. You can use these two traits to your advantage.

A simple phone call to your current lender to let them know you are about to jump ship for a better rate elsewhere will usually see them offer you a better deal. Do this regularly and you can future proof yourself from RBA rate movements. If you need some help or don’t know where to start, reach out to Zinger Finance. 

 

 

how-brokers-can-screw-you-over

How Mortgage Brokers Can Screw You Over

If you want to build a property portfolio to get you where you need to be, you need to make sure everyone you are relying on is on the same page as you.

Your accountant, legal team, buyer’s agent and, most importantly when it comes to loans, your mortgage broker.

Your average mortgage brokers out there may not be interested in your whole property journey. Often, they focus on one job only, getting a loan approved for the one property you are currently looking to purchase, and in doing so, secure their commission.

They are not thinking ahead and getting you the right loan that will allow you to purchase your next one, two or even 10 properties.

Here are a few common ways you can get screwed over by a mortgage broker who may be focusing more on their commission than your property portfolio.

Cross securitization

Cross securitization is a common one. When you are building a portfolio, you don’t want one under-performing property to drag down the rest.

Say you have three loans for three different properties. Loan 1 is worth $100,000; Loan 2 is worth $200,000 and Loan 3 is worth $300,000. You may think they are all their own entities, but let’s just say that unbeknownst to you, your mortgage broker has cross securitized them.

That means that there is a total loan of $600,000, secured against all three properties and you can’t sell or refinance one of the properties without the other two also being considered by the lender.

This situation can present a couple of nightmare scenarios.

Say you want to sell or refinance

Imagine the property attached to Loan 1 is in a property market that has seen some growth and you decide you want to sell that property and access the capital. The bank might say ‘OK, but first we need to do a valuation on the other properties because between them they need to be able to service the remaining $500,000 of that original $600,000 loan’.

If properties 2 and 3 have gone down in value, this may mean you will have to make up the difference to the bank.

Say you’ve paid down some of the loan and you only owe $400,000 but now properties 2 and 3 are only valued at $400,000, having lost $50,000 each in value of the properties. This means your loan to value ratio would now be 100% which the bank won’t allow. The bank may require you to pay $80,000 to get your loan down to $320,000 and 80% of the value of the properties. You’ve now lost any of the gain you may have realised by selling property 1.

The same applies for refinancing. Want to access some equity or get a better interest rate on one loan? Well, this won’t be easy if the two other properties and their loans must be considered, and they are holding you back.

If they weren’t cross securitized?

If the three loans were each stand alone, you could sell the top performing property, keep the money you make and continue servicing the loans of the two underperforming properties as long as you can make the repayments.

Inexperienced or unaccredited

Another trap with mortgage brokers is that you may end up with a higher interest rate than you should be paying or with a lack of flexibility in your loan product. This could be because your mortgage broker isn’t accredited to deal with the best lenders.

It’s important to realise that not all mortgage brokers have access to all the deals that are out there. They may be unqualified or inexperienced.

You need to ask a mortgage broker how many lenders are on their books and what commissions do they get from what lenders. The broker may have access to only a handful of options for you and may be steering you towards the loans that get him or her the best commissions.

Want to cut through the confusion?

The team at Zinger Finance has the best knowledge when it comes to structuring finance for maximum flexibility and growth and can make sure you are getting access to the loans most likely to help you through your whole property journey. If you need help building a finance structure strategy, reach out to us.

 

 

Eligibility-criteria

Eligibility Criteria

Thinking of applying for a home loan? Lenders have a lot of eligibility criteria that you need to meet before they will lend you money. Here’s what you need to know.

Who are you?

You will need to be:

  • An Australian citizen, or a permanent resident, or married to one or a temporary resident visa holder may qualify.
  • Aged 18 or older
  • Be financially reliable when it comes to income, spending habits and history.

Where does your money come from?

You can have a deposit ready to go and plenty of savings, but that won’t matter if your serviceability isn’t up to scratch. Serviceability looks at whether the money you are earning is enough to make your monthly loan repayments and other financial commitments without going into mortgage stress.

Here’s what to consider when you’re:

  • Employed full time: That’s good, but how long have you been in the role? If more than 12 months, great. But the bank may say no if you’re in a 3 or 6 month probation period. Some banks lend while you’re on probation but may lend less than the standard 80%.
  • Part time: You’re permanently employed, but your borrowing power will be less than if you were full time and you will require proof of your contractual hours.
  • Casual: How many hours do you work per week? Have you been getting regular hours for more than 6 months in the one job?
  • Self-employed: You will need to show consistent earnings. Lenders often require you to have been self-employed for at least 2 years, so they can compare your tax records to work out an average income.

Other income streams

Lenders may also consider:

  • Rental income from investment properties (usually up to 80%)
  • Share dividends (a portion)
  • Fringe benefits such as living or car allowance
  • Regular overtime pay (evidence required over 2 years)

Assets and liabilities

Lenders will consider your assets, such as other investment properties, shares, superannuation, your car or other items worth significant amounts

They then look at your liabilities. Do you owe money on a car, personal or student loan? These will affect your borrowing power. The biggest one is credit cards. Lenders look at the credit limits on your credit card rather than what you actually owe on them. So, you might owe $200 on a credit card with a $10,000 credit card… that’s $10,000 as a liability then they look at the monthly commitment at an average 3% of your credit limit.

Where does your money go?

Now, let’s look at your saving and spending habits.

Saving:

You’re going to need genuine savings in the bank, not just for your deposit but also to show you’re capable of setting money aside. Genuine savings is money that has been in your account for at least three months. Gifts and guarantees can be considered part of your deposit, but lenders want genuine savings of at least 5% of the value of the loan. Especially if your mortgage is going to require Lenders Mortgage Insurance (LMI).

If you are renting a property, some banks may look at your rental ledger and consider your payments as an alternative to genuine savings.

Spending:

Lenders often use the Household Expenditure Measure (HEM) when calculating your monthly expenses. Lender’s HEM is used for loan serviceability if it’s higher than your declared expenses vice versa if your expenses are higher than the lender’s HEM.

People have been shocked in recent times to be asked by lenders about individual expenses, such as shopping trips or holidays that have shown up in their transaction details.

Lenders are getting very forensic in the name of responsible lending and if they consider your application, they want to ensure that your declared expenses are sustainable.

Credit score

It’s important to be aware of your credit score or rating before applying for a loan. You can access your credit score for a fee from providers such as Equifax and Experian.

If you have payment defaults or black spots in your history, it’s best to know about these and see what action you can take to improve your credit score before attempting to borrow.

How the property you’re borrowing against might affect you

Once your personal finances are in order, consider the property you want to purchase which will be the security for your loan.

One part of a bank’s due diligence is assessing the risk the property presents to their loan. You might find the lender has a postcode restriction, which may mean special rules for the suburb your new property is in.

That bank may have a lot of properties already in that area which have LMI attached. This heightens their exposure, and they may need you to stump up a higher deposit, say 30% or more, to protect their money.

Then there’s the type of property. The bank might have more restrictions around buying a unit than a house, especially if it’s a smaller than average unit.

Also, the property should be on freehold or strata title without encumbrances. Finally, if you are buying the property as an investment property, you will face higher interest rates and lower LVR than an owner occupier.

 

 

Signing contract. Confident young man signing some document while sitting together with his wife and man in shirt and tie

Different Types Of Home Loans Explained

Before you get into individual loan types and their features, you first need to look at what type of overarching loan it is. For example, is it a residential home loan, or is it for a commercial property?

Is it for an individual borrower, or for a business?

There are so many different loan categories and types out there, but for the purpose of this article, let’s look at the most common, the residential loan.

When borrowing for residential property

There are two main types of residential loan; a home loan (as in, an owner-occupier loan for the home you live in), or an investment loan (when you borrow money to buy an investment property).

In both cases, you need to look at what features you require for the loan.

First, consider the type of repayments you will be making. They can be either principal and interest (P&I), where you’re paying down the principal value of the home and also paying interest on top; or interest only (IO), where you pay the interest on the loan only. You access equity when the property grows in value and get the rental income, but the principal amount that you owe the bank for the home stays the same.

In the majority of cases, a home loan for an owner-occupier property would require P&I. If you tried to borrow for an owner-occupier on an IO deal, the bank would require an explanation. But loans for investment properties are usually IO. This allows the investor to maximise cash flow, tax benefits and freedom to move money around.

Variable or fixed interest

 Now the type of interest, is it variable? Or fixed?

On a variable rate, the interest you pay will change when the bank decides to change its interest rate.

If it’s fixed, you can lock in the interest you pay at a certain rate for a particular term…usually 1, 2, 3, 4, or 5 years.

Variable rates are good when interest rates are low and potentially still on the way down. Fixed rates are good for people who want to lock in a rate that they are happy with and have certainty over their repayments for a certain time.

The loan features you need

There are various features available with variable loans. You might get 100% offset, where the savings you have offset the interest you pay on your loan. Other features are redraw facilities and the ability to make lump sum repayments. Some loans have a switch feature, where you can switch from variable to fixed.

A lot of banks offer package loans, where you pay an annual fee and that may cover the bank’s valuation fee, the application fee and the monthly fee. Some banks allow you to pay the one annual fee that then covers a number of different loans. Some have an unlimited number, while others cap the number of loans covered by the annual fee.

Basic versus standard variable

When you are looking at variable loans, there is also a difference between a basic variable and a standard variable product.

Say your variable loan option is a package, you might be able to negotiate discounts off the interest rate you pay. Or you may be a great saver and you have $200,000 in savings. You want the offset feature because you want to keep your savings but also be able to use it to offset the amount you owe and reduce the principal amount that you are paying interest on. You can negotiate these things in package loans.

Basic loans on the other hand are different. They are no frills types of loans. They are cheap because they don’t have many features apart from a redraw facility. The bonus is that they often don’t have application fees, or monthly fees. They don’t have an offset, but if your loan is less than $250,000, a basic loan will still be cheaper than a package loan.

 

 

Low-rates-what-does-this-mean-for-you?

Low rates – what does this mean for you?

The RBA decided to once again leave interest rates on hold at 0.1% at its recent March meeting, which means yet another month at the lowest interest rates ever.

In fact, if you have been paying off a mortgage at any stage over the past few years, you have been doing so in a historically low interest rate environment.

The RBA does this to stimulate the economy. The lower the interest rates are, the less money you spend on your debt, which means you have more to spend elsewhere. This extra spending helps prop up the economy.

But how you put that money to use is up to you. Recent research has shown the pandemic changed many of our spending habits, with Australian households saving an estimated extra $120 billion between April and December last year, due to restrictions on travel, hospitality and more. We seem to be more cautious about spending on material goods and luxuries and now choose to funnel extra cashflow back into our homes.

First things first

In order to take advantage of low interest rates, you need to make sure you’re paying the lowest that you can be.

Get online and check out loan comparison websites to see what else is out there. If there are better deals, you can consider refinancing with another lender; or, if you don’t want to leave your current bank, give them a call and ask them to match the better rate.

It’s a competitive market for lenders and they are keen to retain customers, so banks will often grant you a better deal if you pick up the phone and make them think you are ready to take your debt elsewhere.

Pay your own mortgage off sooner?

Now that you’re happy with your interest rate, where to next? One option is to keep making the same mortgage repayments, or even increase them and pay down your mortgage as soon as you can. Traditionally, people would want to pay their house off ASAP. Paying a bit extra when you can manage can shave years off your repayment term and save you tens of thousands of dollars over the life of the loan. You own your own house and any money that comes in. But is that still the best option?

Conditions have changed

Paying off your house early used to be beneficial when interest rates were much higher. For example, when banks were offering an average of around 7% on standard variable products, the accumulative effect of compound interest meant you would end up paying more than the purchase price of the property in interest alone over a 30-year loan term.

Now though, it’s a different story. You can get much better returns by focusing on acquiring new, quality debt rather than paying off existing debt which is attracting very small interest. Investing in property with plenty of upside for growth and good rental return can be a great way to take advantage of low interest rates.

Make lower repayments?

An option is to make lower repayments on your mortgage and free up more cash for your day to day life. That extra cash could be used to pay for something you need, or again, to invest in shares or property.

Making minimum repayments on your owner-occupier mortgage will free up even more cash to leverage into as much quality debt as you can manage.

You might use that cashflow to acquire multiple investment properties, which pay a rental income and appreciate in value throughout the rest of your own mortgage term.

Then, later down the track, you have the option to sell off some of your assets and use the capital gains to pay off your remaining debt, while keeping remaining properties for further income and equity. Or, simply keep holding the assets and benefiting from their growth and returns for as long as possible.

 

 

Package-loans-VS-basic-loans-under-variable-rates

Package Loans VS Basic Loans Under Variable Rates

The mortgage market is full of options as lenders try to attract business in a competitive landscape.
Getting advice from a mortgage broker can be a great way to get an idea of what type of home loan will suit your situation, but it’s also good to educate yourself on the types of products that are out there.
Let’s take a look at two main categories when considering a home loan product: package loans versus basic loans.

Do good things come in packages?

Package loans have become very popular in recent years and account for more than 50% of loans written by major lenders.
Package loans usually combine your home loan with other common financial products, which may include a mortgage offset account, transaction or savings account and credit card. They are eligible for interest rate discounts off the standard variable rate, fee waivers on loan approval and valuation fees.

Basic home loans are not packaged with anything. They are ‘no-frills’ loans where you save money on upfront and ongoing fees, because you don’t have the flexible features that cost more to administer but often allow you to save much more money long term.

What a fee-ling

In return for packaging products, lenders will make it worth your while by charging one annual fee for multiple loans, rather than separate fees for each product.
If considering a package loan, find out whether that one annual fee includes the other home loan fees you may not know about, such as an application fee, property valuation fees, redraw fees, switching fee (from variable to fixed and vice versa) and offset account keeping fees. Other fees to be aware of are the application or establishment fee, bank solicitor fee and settlement fee, when setting up your home loan.
These can vary in price, but average between $150 and $700. They are usually non-refundable but major banks are often happy to waive these fees, so make sure you ask ahead or negotiate, as this could be the difference between choosing a package or basic.

Rate expectations

Banks will often give you a discounted rate for package loans. Market comparison platforms generally find that interest on average package loan products is between 0.25% and 0.5% lower than average standard variable rate loans.

That saving alone is more than enough to make up for the annual fees which can be higher than what you would be charged for a basic loan.

Unique borrowers can benefit

Flexibility is the key for borrowers such as property investors or the self-employed who want to free up cash flow and maximise future borrowing power. Features such as interest only repayments, line of credit and others will appeal to investors as long as they choose the package that suits their strategy, while credit cards and transaction accounts are useful to small business owners.

Break it down to the basics

So when would it be better to shun a package for a basic home loan? You may just want a simple, no frills home loan that you can quietly pay off. 

Basic loan products will likely offer you the low interest rates you want, but there may be loan features and loan flexibility that you may not realise you need.

 

 

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